Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Mine

New strategic deposits only to enrich Erdenes Mongol? 

 

By G. Iderkhangai                                      

The Mongolian Mining Journal /April.2019/

                                 
State-owned Erdenes Mongol is at a critical point of its life.
The working group led by L. Oyun-Erdene, Head of the Cabinet Secretariat, has given final touches to the draft law on the planned wealth fund which should be discussed at a government meeting very soon and then sent to parliament where it is expected to have an easy passage. The draft proposes to make Erdenes Mongol solely responsible for management of the fund. The company runs Mongolia’s strategic deposits which have abundant mineral resources but the question before every citizen is: can it run – or, be allowed to run -- them well enough to earn the kind of profits that would make the fund truly a wealth for future generations? 

Hectic activities are on at the sectoral ministry to give more assets to Erdenes Mongol. A working group consisting of representatives from the General Intelligence Agency, the Mineral Resources and Petroleum Authority, the Ministry of Mining and Heavy Industry and other ministries is busy making a revised list of deposits of strategic importance which, by law, will belong to the state and thus come under Erdenes Mongol.     

Parliament’s 2007 Resolution on Taking Certain Deposits as Deposits of Strategic Importance has two appendixes. The first identifies 15 deposits of strategic importance, while the second entrusts the Cabinet with determining the reserves of another 39 deposits and of any new deposit discovered subsequent to the adoption of the resolution. Once this is done, Parliament would decide which of these are to be named deposits of strategic importance.   

That same year, Erdenes Mongol was born and later expanded by giving it two subsidiaries, Erdenes Tavan Tolgoi (ETT) and Erdenes Oyu Tolgoi (EOT). ETT is now under the control of the Ministry of Mining and Heavy Industry (MMHI) and the Agency for Policy Coordination on State Property. It makes high profits but Erdenes Mongol has stressed in a media press that this has had no impact on its financial health. Recently, the sectoral minister has said that ETT will be transferred back to Erdenes Mongol after its proposed IPO, but there has been no word on whether the ministry would retain control of ETT if the IPO does not take place. 

A Cabinet Resolution in 2013 transferred Erdenet Mining Corp to Erdenes Mongol but this was not done and nothing has been heard of it since, though it is both a large deposit and of strategic importance. The obvious reason for ignoring a Cabinet decision is that Erdenet Mining is too important to politicians who prefer to keep it under the control of the Agency of Policy Coordination for State Property. At the moment, it has a new status, having become “a state-owned enterprise”, and has been put under a special regime under direct control of the Government. 
The pattern is clear. Erdenes Mongol is not given control of mines that make money but is saddled with entities such as Shivee Ovoo and Baganuur which are in debt and/or require expensive upgrading of technology, and Erdenes Methane and Mon-Atom which are yet to raise capital. Not so long ago, the Asgat and the Salkhit silver deposits were given to Erdenes Mongol with much fanfare. The ground reality, however, is that there is no clarity on when operations could begin at Asgat, as its processing technology is yet to be decided, and there has as yet been no agreement with the Russian side. 

The case of the Salkhit deposit is yet more curious. Its licence was taken over from the legitimate holder, even though it is not listed as a strategic deposit and is also not among the 39 deposits which might qualify as one. Will other such deposits also be brought under the control of Erdenes Mongol?

As for the Tsagaan Suvarga copper-molybdenum deposit of Mongolyn Alt or MAK, which has been wrongly said to own 36 licences, it is in private hands despite being one of the 15 strategic deposits listed by Parliament. A working group set up by Parliament held several rounds of talks with MAK on how the state could own 51 percent of the deposit, but there was no agreement. Finally, in 2014 it was resolved that “state ownership is not necessary in the Tsagaan Suvarga deposit”. There matters rested until the Prime Minister revived the dispute, largely, one fears, as a political act.   
Taking its cue from there, Erdenes Mongol has noted in a recent media release: “Like large projects of strategic importance such as Oyu Tolgoi and Erdenes Tavan Tolgoi…, it is required for Asgat, Salkhit, Tsagaan Suvarga, Mungun Undur and Tavt deposits to prepare a proposal on how they can be put into economic circulation, present it to the Government, announce it internationally and attract investors’ interest. The Wealth Fund will be richer only when these projects are in economic circulation.” 

This is easier said than done. So much preparatory work still needs to be done on most of these deposits, including basic infrastructure and, in some cases, getting the reserves estimates approved. Erdenes Mongol will not find it easy to generate any revenue soon from these deposits that can be put into the Wealth Fund. It will have to sign a separate investment agreement with each deposit, and then submit these to Parliament for approval.  It has never been easy to agree on how shares would be divided between the Government and the investor. Centerra Gold finally left the country when the the Government and it were unable to settle the ownership percentage issue at the Gatsuurt Deposit. 

Take the Tavt silver deposit mentioned in the Erdenes Mongol statement. Located in Teshig soum of Bulgan aimag, it is one of the 39 deposits under consideration to be included in the list of strategic deposits. The Mungun Undur silver deposit in Umnudelger soum of Khentii aimag is likely to make the list. But there are other deposits where Erdenes Mongol has no ownership claim or there are issues that make early start of operations doubtful. For example, Tumurtei belongs to Darkhan Metallurgical Plant; the Burenkhaan phosphate deposit has no extraction plans; the Tumurtein Ovoo zinc deposit is in the hands of Tsairt Mineral which has signed a stability agreement with the Government. The Mardai, Dornod and Gurvanbulag uranium deposits are yet to commence extraction, and no investor is in sight, mainly because under the Nuclear Energy Law, “the state shall directly possess free of charge no less than 51 percent of shares of the company to be set up jointly”.   

Anyway, additions are certain to be made to the existing list of strategic deposits, giving Erdenes Mongol more assets, and thus more revenue, according to B.Batmagnai, Chairman of Capital Management Division of the company. Similarly, B. Munkhtur, Head of Geology and Mining Policy Implementation Coordination Department of the MMHI, says uranium deposits will be treated as strategic deposits and the government will claim all deposits where exploration had been made with state funds.  

D. Altankhuyag, a Senior Specialist at the Department of Strategy, Policy and Planning, at the Ministry of Mining and Heavy Industry, explains how things are being done. New and more detailed criteria have been formulated by the working group to determine whether a deposit is. strategic. These have been presented to the Professional Mineral Resources Council. Also to be discussed and decided is what to do with deposits where operations have been halted because of the “long named law”. 

New entrants to the strategic deposits list are most likely to include several coal deposits such as Talbulag, Alag Togoo, Tevshiin Gobi and Zeegt deposits and small deposits of other minerals such as the Khongor fluorspar deposit and. In all of this, Of course, some exploration had been done with state money before 1990, but their reserves were increased later following more exploration with private investment.

The 2007 Resolution by Parliament set out three reasons why it found 15 deposits to be of strategic importance. The first two are straightforward. One is the size of the deposit, and the other the source of funds for their exploration. The third was more subjective and thus never likely to be properly determined.  This is reflected in Article 4.1.11 of the Minerals Law, which reads: “A mineral deposit of strategic importance” means a deposit whose scope may have a potential impact on national security, economic and social development of the country at the national and regional levels or that is producing or has a potential of producing more than five  percent of total Gross Domestic Product in a given year. 
Based on this article, 10 criteria were set in 2012 by what was then called the Ministry of Mineral Resources and Power for identifying strategic deposits, These were:    

1. Importance of the type of mineral resources 

2. Volume of reserves and resources, level of the reserves’ assessment

3. Source of funds for geological studies 

4. Ore content and quality indicators 

5. Mining geology and mining technology conditions 

6. State of infrastructure of the region

7. Mine capacity, volume of annual production 

8. Annual sales, direct contribution to be made to the local budget 

9. Environmental impact 

10. Production output higher than 5 percent of the GDP of Mongolia

In 2012, the ministry assessed 64 deposits under these 10 criteria and recommended inclusion of 33 of them in the list of deposits of strategic importance, but nothing came of this. In fact, until now no addition has been made to the initial list of 15 deposits. At one time, there was a move by the local community to declare the Khushuut coal deposit, mined by a company registered in the Hong Kong Stock Exchange, as a strategic one, but it fizzled out in the face of dispute among politicians on the issue. Today the ten criteria are being updated, and the working group admits that there are many things unclear in them. For example, how much reserves must a deposit have to qualify as large? What  adds to this problem is that reserves are determined differently for different minerals.  

Such allegations of lack of clarity haver marked similar exercises in the Russian Federation. One hopes the present work on more specific criteria in Mongolia would yield better results.  The Professional Mineral Resources Council has joined in the work and is determining borders of deposits and resolving disputes caused by overlapping coordinates of mining areas. It will also have to decide  which parts of the licensed areas in both Oyu Tolgoi and Tavan Tolgoi are not actually part of these two deposits of strategic importance even though their resources might have been included in the recorded reserves. The job of such specific boundary demarcation is not easy. It requires sophisticated equipment and also clear legal guidelines. 

Recently there was consternation when Z. Enkhbold, Chief of Staff of the President, made a statement that the Government would take over 400 deposits where exploration had been carried out with state funds. It was found that he had talked about cancelling 400 extraction licences and both the Ministry of Mining and Heavy Industry and the Mineral Resources Authority issued statements to reassure the sector that the present laws do not permit take-over of deposits. Despite all this, suspicions about the Goernment’s intentions persist. 

Many deposits where exploration was done and reserves registered in the socialist days were later divided into smaller areas, all of which were then registered as separate deposits and separete licences were issued for these. Taken together, such licences would number more than 400. It is now common to call every licensed area a deposit. In fact, there are many more licences than deposits and exactly what Enkhbold meant would not be known until the Mineral Resources Authority separates deposits from licences and issues an official clarification.   Such deposits include Tavan Tolgoi, Tsagaan Suvarga, Asgat and Salkhit. 

When we talk about deposits where exploration was made with state money, we often forget that in many cases, their present extractors have reimbursed the exploration expenses to the state. Indeed, the investor has to give a commitment to do so before being granted an extraction licence and the Mineral Resources and Petroleum Authority has said the reimbursement is made without fail. There can be no legal basis for taking away an extraction licence after the holder has repaid earlier exploration expenses. One has to agree with the bold statement by Mongolyn Alt: “We will not give back the Tsagaan Suvarga deposit. The move is illegal and is robbery.”